GBPUSD advances towards 1.1880, all eyes on US housing data.

• GBPUSD is holding on to gains of 0.24% to enter the North American session.
• The Federal Reserve’s comments are aggressive in tone, although market sentiment is optimistic.
• UK retail sales beat estimates, providing a tailwind for the pound.
• Traders are watching US Existing Home Sales and Fed statements.

The pound sterling (GBP) is nearing 1.1880 amid a boost in risk appetite, as shown by US stock futures rising for no fundamental reason after a series of Federal Reserve (Fed) officials signaled rates would continue. going up. At the time of writing, GBPUSD is trading at 1.1882, up 0.35% from its opening price, taking advantage of broad US dollar weakness.

Sentiment turned positive as North American traders await US economic data on Existing Home Sales. As the latest two US inflation reports, the Consumer Price Index (CPI) and the Producer Price Index (PPI), fueled an improvement in market sentiment, policymakers Fed policy officials spoke out against a possible Fed pivot. St Louise Fed President James Bullard said interest rates are not “tight enough,” adding that they would be if the interest rate federal funds (FFR) will reach the zone of 5% to 5.25%.

Echoing his comments, Minnesota Fed President Neil Kashkari says the Fed cannot be overly convinced by one month’s worth of data, as the Fed must continue to act until it is sure that inflation has stopped rising. . On Friday, Boston Fed President Susan Collins signaled that the Federal Reserve has to keep raising rates, adding that rates will have to stay high for some time.

Early in the European session, UK Retail Sales were released, surprisingly above forecasts, despite the Bank of England (BoE) acknowledging that the UK economy had entered recession. October Retail Sales rose 0.6%m/m vs 0.3% estimate, while excluding volatile items grew 0.3%m/m, below forecasts of 0.6%. In annual terms, both figures contracted less than expected, but remained negative.

Meanwhile, traders continue to assess the level of inflation achieved in the UK, which is the highest in four decades. The Consumer Price Index (CPI) grew by 11.1% year-on-year in October, and above the Bank of England forecast that inflation would peak at around 10.9%. As shown by STIRs, money market futures estimate an 82% chance that the Bank of England will raise interest rates by 50 basis points, to 3.50%.

Meanwhile, UK Chancellor of Finance Jeremy Hunt announced a £55bn budget, riddled with tax hikes and spending cuts. The budget is split between £30bn in spending cuts and £25bn in tax increases. However, most of the spending cuts are planned for after the next election, scheduled for January 2025.

GBPUSD Key Technical Levels